Is it too soon? Or do I have enough

[MALONEBOSS]

Hello,

I am a 45 year old who is looking to retire next year at 46. I am trying to understand if I have enough money to retire now, or if I need to wait it out a few more years. I am looking for anyones advice, and opinions, please. I have given some details about my savings, etc.. below.

I am currently working in a job that pays me approx $125k per year. I previously owned my own business for 20 years.
My wife works for the school district and makes about $15k per year, plus she has our health insurance.

We own our house, 100% paid in full. Value $345,000
We have no debt, nothing.
We have two kids, one 16, and one 14.
College Savings for both children is $75K each, or $150k total.
Our nest egg is $3,500,000. This is made up of savings and IRA.

Our current living style suggests that we will need about $135k per year, after taxes.

Any thoughts are greatly appreciated.

 

[REWahoo]

Malone, will your wife continue to work and provide health insurance? Other than $, health coverage is usually the biggest hurdle to early retirement.

Next question, have you run your numbers through FIRECalc to see what it tells you about the chances of your nest egg holding up for the long haul while withdrawing $135K + taxes per year?

 

[Bestwifeever]

You have an impressive nest egg, that's for sure. It has to last a long time though.

Do as REWahoo suggests above, and track your expenses too because "we will need about $135k per year, after taxes" is pretty vague. Is your current combined income of $140K after taxes?

 

[MALONEBOSS]

Thanks for the nice responses.

1. My wife will continue to work, earn the 15k, and continue health coverage.
2. The $135k is vague, but it's pretty much made up of average monthly expenses we have.
3. The $140k now is before taxes.
4. I think the whole tax situation is very confusing. I really have no idea what to figure for taxes. I obviously can't invest in Muni Bonds and expect to survive another 30-35 years. Any help here would be very helpful.

 

[donheff]

If I understood correctly you currently gross $140K while saving for ER and building the kids college funds and paying taxes on the gross. If so, your expenses must be well below $135K so why say you need $135K after taxes. It looks like you could continue your current life style on well less than that before taxes. What are your actual expenses (with some wiggle room)? Subtract $15K. Add in estimated taxes. That number is what you need to be able to generate each year as a withdrawal rate from your portfolio.

 

[79protons]

any tips on how I could save 3.5 million by spending almost as much as I make? I am very impressed that you were able to do this and would really like to do the same.

 

[Uncle Drew]

You could previously own your own business...

 

[Rustic23]

I like you started out looking at the income side of retirement, however, when it got down to it, it is the expense side that determines if you 'have enough'. You have to track expenses. You have to know how much you must spend, and how much you can spend.

If your expenses are $135,000 after taxes, and there is not cut room, then, IMHO, you do not have enough. Most here would recommend a 3.5% withdrawal rate rather than 4% for a 46 year old retiree. That would generate $122,500 on 3.5 mil., and that is before taxes. Even bumping to 4% will not give you a big enough after tax income.

Now if you plan is to draw a larger percentage until you reach SS, then plan on supplementing your income, it might be possible. However, your are banking on SS. This is not a bet I would like to make at age 46. If you were in your 50's or 60's, it would be a safer bet.

 

[dex]

2. The $135k is vague, but it's pretty much made up of average monthly expenses we have.
3. The $140k now is before taxes.

This does not sound right
140K before taxes - 100 - 110K after taxes (?) spending 135K after taxes means currently you are spending 25 - 35K out of your savings every year.

Do you have a detailed spending budget you can post?

 

[MALONEBOSS]

Ok, so basically I need to wait until 50 or 52, or chop expense to 100k.

 

[REWahoo]

Ok, so basically I need to wait until 50 or 52, or chop expense to 100k.

Before you can know whether this or any other number will work you need to get a good handle on your expenses. The only way to do that is to track them for a while.

This isn't as difficult as it sounds, you don't need to account for every penny spent. You should be able to group your outlay into a couple of dozen categories and keep up with how much you spend in each for at least six months - a year would be better.

Then figure out how those expenses will change after you retire. Gross that number up for taxes and you should have a reasonably good estimate of what you'll need per year once you retire. Run those numbers through FIRECalc (mentioned in my first post) and that should tell you whether you can pull the plug now or need to work a few more years.

 

[walkinwood]

Work your numbers through Firecalc and the free online version of ESPlanner. Also, read Bob Clyatt's book Work Less, Live More.

Finally, track your expenses in detail for at least a year. Use a spreadsheet or buy a software tool like Quicken. There are also some online sites that make it very easy. IMHO, this is just as important as amassing a big nest-egg. You'll find that your spending behavior changes when you track it - along with DW.

If you plan to use money from taxable accounts for your expenses till you hit 59 1/2, you'll find that your taxes will be extremely low. Clyatt addresses it in his book & estimates about 5% of your annual spend. In your case it may be a bit more because your wife is working. Put the numbers through a tax software package. You'll be surprised.

Welcome & all the best.

 

[MALONEBOSS]

It looks like my actual expenses BEFORE taxes are around $110k.

 

[dex]

It looks like my actual expenses BEFORE taxes are around $110k.

Do you have a detailed spending budget you can post?

....

 

[Rich_by_the_Bay]

It looks like my actual expenses BEFORE taxes are around $110k.

That's more like it. For these purposes, taxes are treated just like another expense in your budget.

 

[Dimsumkid]

It looks like my actual expenses BEFORE taxes are around $110k.

Reading this and your initial post has me confused too. $9100/mo in bills, but no debt and no mortgage and no health insurance to pay for. Those are the biggest bills outside of RE taxes, are there cars, boats or a major remodel that you're paying for that you forgot to mention?

 

[FinanceDude]

Reading this and your initial post has me confused too. $9100/mo in bills, but no debt and no mortgage and no health insurance to pay for. Those are the biggest bills outside of RE taxes, are there cars, boats or a major remodel that you're paying for that you forgot to mention?

Maybe a lot of toys??

 

[CuppaJoe]

Welcome, I came here with the same question.

I like the way you use the word, "we," and suggest you invest in keeping your DW very very happy as she is to provide 13-19 years of health insurance. Does she have a benefit that would provide early retirement health insurance?

 

[MALONEBOSS]

The expenses include life insurance policy premiums, Property Taxes, vacation allowances, gas, fuel, living expenses. Everything I spend money on I have accounted for.

 

[Rich_by_the_Bay]

Welcome, I came here with the same question.

I like the way you use the word, "we," and suggest you invest in keeping your DW very very happy as she is to provide 13-19 years of health insurance. Does she have a benefit that would provide early retirement health insurance?

Good point, though I am optimistic that health care reform will make insurance available directly (without an employer in the picture).

It seems that even many of those who oppose most of the reform think that piece is important. Hope so for the OP.

 

[REWahoo]

The expenses include life insurance policy premiums...

Once you are financially independent, will you need life insurance? If you and your family can live off your nest egg, can't your family do the same if you are gone?

 

[CuppaJoe]

... I am optimistic that health care reform will make insurance available directly (without an employer in the picture). ....

I thought I was an optimist, too, R-I-T . When that does go into effect (or when MediCare kicks in), I'll probably continue to allocate the same huge percentage of my budget (plus inflation) to various medical/health expenses. .

I was very fortunate that my employer paid for an individual plan which was portable allowing me to retire well before 65 without having to figure out what to do when COBRA runs out.

 

[MALONEBOSS]

We certainly do not need the life insurance at this point. However, consider the following:

1. My wife's policy is a term life policy and valued at 2m. I'm not sure we want to give that up just yet.
2. My policy is a universal policy with a nice cash value. I can obviously use this cash for numerous things. One thing the cash value can do is start paying the premiums.

I am paying $7,800 a year in insurance policies, and could almost be considered insurance poor. But when you consider the 10 year cost of $78,000 vs the 2 million payout for a tragedy I think the risk is worth it for my family.

So while we probably do not need the policies, I think I will hang onto those as long as I really can. Because of the policy sizes, it certainly would give my kids some independence if me or my wife kick the bucket in the next 10 years.

 

[Rich_by_the_Bay]

I thought I was an optimist, too, R-I-T . When that does go into effect (or when MediCare kicks in), I'll probably continue to allocate the same huge percentage of my budget (plus inflation) to various medical/health expenses. .

I was very fortunate that my employer paid for an individual plan which was portable allowing me to retire well before 65 without having to figure out what to do when COBRA runs out.

Yep, I think it is wise not to count on it in planning at this point. OP is young enough that if it happens, it will do so while he is can really benefit. Too late for most of us seniors, most likely.

Sweet deal you got there on the individual policy.

 

[Rustic23]

If you and your wife kicked the bucket the next ten years, your kids would have close to $3.5 mil to get started with. If you look at your insurance as some kind of a game, then 2m or 7.8k a year may seem like a reasonable risk/reward. However, if you look at 7.8k less expense means you can retire, it puts it in a different light.

For me insurance is there to serve a purpose. If I die, it will replace my income for those I leave behind. If they no longer need that income, then I no longer need the insurance.